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Sunday, January 22, 2012

SPX and BKX Updates: Rare Top Indicator Triggered on Friday

Before I get to the indicators and market charts, I want to do a quick update about domestic mutual fund flows, with some new data that has come to my attention.

Last week, we discussed the high number of mutual fund outflows which have been ongoing for several months. Let's take a look at the updated mutual fund flow chart, courtesy of Lee Adler at the Wall Street Examiner, and then the new data I want to discuss. Here are Lee's comments regarding the chart which follows:

Domestic equity mutual funds had $0.7 billion of net inflows in the week ended 1/1/12, up from $7.1 billion in net outflows the week before, which was the highest level of weekly outflows since August. This was the first week of inflows since last April, which was nearly coincident with the top of the market at that time. Total outflows for November were $14.3 billion and for December are estimated at $18.2 billion based on the weekly data. The projection for January based on the first two weeks is for outflows of $13-14 billion. That would continue a bearish signal on the chart. A continuation of heavy outflows could eventually take a toll on stock prices.

Some analysts are taking the large outflows as a sign that the public is bearish. I have a different theory, and feel that the recent outflows have little to do with sentiment. Before I outline my theory, let's first look at some facts:

1) The personal savings rate in the U.S. has fallen to its lowest level since December 2007 (the early stages of the last bear).

3) According to Aon Hewitt, nearly one-third of all people with retirement savings accounts have outstanding loans against those accounts.

These facts underpin why I don't think the huge mutual outflows are primarily due to a bearish public, although certainly some are. Based on the above statistics, it seems to me that a good chunk of these outflows are happening because people actually need the money. Certainly, demographics are at play as well, since the over-sized baby-boomer generation is gradually retiring and turning from net savers to net spenders; but that's akin to "needing the money." In any case, I think to just write off the outflows as being symptomatic of a "bearish public" ignores the supporting facts. The public outflows appear to be a sign that the economy is still quite sick.

That said, we still have the ongoing flood of cash fleeing Europe to give the bulls more firepower. I'm not going to re-hash this point, as it was already covered in last Wednesday's update, but Europe remains the X-factor in this market, and could be the reason that numerous top signal indicators have failed.

Speaking of, there was another topping signal triggered late last week. This is a pretty rare signal, which has only occurred three times in the prior 4 years. The signal triggers when VIX:TNX closes outside its lower Bollinger band concurrent with a major index closing outside its upper band. It's a sign the market has become quite overbought and over-confident (complacent). Compare the current market position with the last two times this signal triggered on the chart below. The S&P 500 is shown in the top panel.

Can Europe blow-up this indicator too? We'll find out soon enough, I suppose.

The next chart is another top indicator, which has fallen just shy of where I like to place the signal line. However, last week it reached levels which also frequently coincide with tops. The indicator compares the volume on the Nasdaq as a ratio of volume to the New York Stock Exchange. When the ratio meets or exceeds 2.6, it indicates excessive speculation in the "riskier" Nasdaq stocks, complacency, and "rally chasing" by investors. The ratio recently fell just shy of the 2.6 level, which still indicates a high degree of optimism and complacency.

Again, I ask: Can Europe blow-up this indicator too?

In case they do, I have spent some time looking for alternate long-term counts. Elliotticians seem to be mainly divided down the middle as to what's happening next for the market: some are expecting a top soon, as I am -- others are expecting a massive nose-bleed rally to new all-time highs. I don't view that as likely, but I suppose if the flood of money from Europe intensifies, it might become conceivable. However, I wanted to see if there was something in-between these two extremes which might be viable, and I think there is.

Now, keep in mind that this chart below is my alternate count, not my preferred view of the long-term -- largely because I continue to believe that the wave off the 2011 highs is an impulse wave, which means new lows are still needed. However, depending on what happens over the next week or two, the market may give new input that requires me to shift my viewpoint.

This chart also adds another, slightly humorous, top indicator (or bottom indicator, for that matter) to the dozen other ones: 8 out of 10 times when I start giving serious consideration to an count that is markedly more bullish or bearish than my preferred big picture count, a reversal is very nearby. A little more anecdotal than objective, but maybe publishing this chart will finally trigger the reversal.

The next chart is the short term SPX wave count. I can see two likely possibilities in this chart, and I'm pretty torn as to which I'm favoring. The first is the same count that was shown on Friday, which suggests this wave up still wants to head a little higher, into the 1320's.

The second (black alternate) has some appealing characteristics, however. Readers will recall that I previously believed the rally to be part of an ending diagonal; this black count explains the a-b-c appearance of the rally as being part of a leading diagonal first wave. This would account for the overall form of the structure, and the fact that the rally has continued despite its presumed completion.

The last chart is the Philadelphia Banking Index (BKX), which also shows a wave structure that appears to be nearing completion.

In conclusion, there are many indicators, both common and esoteric, which are suggesting that the rally is massively overbought and due for a correction at the minimum -- or a serious decline if my long-term view is correct. The caveat, of course, is that past performance is never a guarantee of future results, and maybe the goings-on in Europe are temporarily distorting the accuracy of these indicators and wave structures. Is this time really different after all? We simply have no way of knowing, so I have to continue to give the benefit of the doubt to the odds... and the odds still favor a top very soon. Trade safe.

Tops are a process, not an event. I expect, from the character of this mrkt for there to be a number of doji forms (up 3 days worth?) up here before any down, if down is next. Could also be a double top, down for a couple of days, then up again, then down.

Europe is about to reach a great agreement: Europe do not agree on the Fiscal Compact, Europe no not agree to increase the ESM (IMF Fund to svae states) and Europe do not still agree on how to save Greece. But Goldman Sachs is optimistic, GS agrees and the worst European banks today are jumping 9%. Are we on a Top?

Your latest update had red (i) to 79,84 Im not a EW expert, so the question - is your favorable count still in play although dollar went below 79,84 today. Or should I say - anything in EW rules that just took your preferable count out of play? Is a "feakout breakout" (or what you call it) down possible?

C-S Now that's a parabola! (great illustration)...I missed buying at the top by just 3 months. The good thing is that due to historically gently sloping craptastic housing prices in the area, we have only been hit about 5-10% for existing homes. I'd hate to have been a new McMansion buyer.

The good thing about EW is, you can use it on a lot of underlyings in nearly every time frame. So sometimes I wonder, why people get stuck in one ugly looking chart (underlying and time frame) and need to trade that beast. If you see a nice move, in any time frame in any liquid market, e.g. a toilet manufacturing company, go for it. Why bother trading unclear situations. Thats mostly just a waste of money and time. The setup rules. But I guess, thats not news to you... :)

PL, several months ago you posted a chart, I think from the WSE that showed the amount of money be shoved out by the FED to primary dealers, can you do that again in tommorows update.

Also, you keep mentioning money from Eurpe, I doubt that the source of these Euros are individuals or even hedge funds and more likely the dollar swaps for the Euros printed and given thru their ESF that are filtering into our equity market and will remain here until they have to start really buying bonds in the omming months.

USDINDEX looks like main culprit here for SPX to climb the wall (as they have inverse relation). USDINDEX has clear impulse wave downside and getting into 5th wave now, expected to stop at 79.43. As this is 5 wave move, it expects 3 wave upmove and taken another 5 wave move downside to the levels of 78.75 to 78.0. So seems like SPX topping doesnt seems like in near future (seems like 1350) inverse h&s pattern target ????

2 things MUST be closely watched, TODAY, all day long, as I already said several times, last week. For IF they break: bear TROUBLE.

1. MAJOR gold price resistance at $1680, resistance establish for MANY powerful reasons, must NOT be broken, and, right NOW, it is very close to breaking, there was a stab up close to it earlier today, to $1678, and if it breaks $1680, next stop is $1760, in a 'nosebleed' gold rally, to match the spx, going way above, the next major point I will make:

2. DOW INDUSTRIALS MUST hold below prior may 2011 top of 12810, which it is also, like gold, very close to BREAKING above it, at 12745 as I write this, and IF it breaks above prior high, just like gold, the chances of a 'nosebleed' further bull rally increase tremendously.

MY opinion, for today: IMO, both WILL break, they are TOO CLOSE to their max targets, both gold and DJI, because both have strong momentum today, to just stop all of a sudden, and turnaround. Therefore, I give it right now, 1015am et, an 80% chance, that that 'unlikely' 'nosebleed' rally, will soon be here.

Nice. I keep thinking that based on my admittedly limited observations, EWP seems to work most reliably on time frames of one minute or one week, and anything in between can start getting dodgy very quickly.

And NO, I have not turned 'bullish'. However, as that old amerikan saying goes, if it looks like shit, feels like shit and tastes like shit, it probably is shit. Same for for one last insane 'nosebleed' bull rally, for if it looks, feels, and smells like a stinking bull's last crazed, illogical horns' thrust, it probably is one. Too much momentum left in this fucking rabid loony ancient bull, so how do you kill it, you need a stick of dynamite, to blow up the motherfucker that won't die. So, what will BE that dynamite? Maybe a full 100% greek 'haircut' , and dropping out of euro, I think. And, when the FAKE 'bull' finally dies, like a paper 'bull piñata, how big will be his sudden 1-day fall?

Something to watch: AAPL broke through recent trendline support on Friday and is back-testing that line this morning. Not a recommendation but it is set up nicely as a short. Could play out well to the downside with earnings tomorrow after the bell.

es on my 5 min seemed to make a slight impulse down move..........but weve seen this occur over last 3 or so weeks to move back up......so....will wait n see.......me thinking state of union address will be negative and will be hard for me to watch without screaming at him.....fed news too.....sure to be fire works one way on another. ..........sure felt some max pain this morning......

I tried posting this half hour ago, but this site's mb uploading and script is so huge, it now often crashes MY fucking connection.phead MUST reduce the upload asap to ONLY ONE DAY, only his last post, and not an entire fucking week of posts.

here is what I TRIED to write over halfhour ago herein---

I am going to add something else, because ALL markets are on RAZOR'S edge, right NOW.

IF, by some miracle (due to REALIZATION, of a FULL 100% greek haircut, TODAY)the EXTREMELY close potential-breakages of the UBER important gold and DJI resistances, DO HOLD,THEN, TODAY intraday could whipsaw (just like oct. 4): or if not today, TOMORROW before market open, HUGE spx drop.

ALSO, I have right now gone back to gold charts, to look for some EXACT breaking point in gold price (since it is so CLOSE now),and guess what, it's a bit higher than $1680, its $1681area, and PERFECT trendline down from all 3 prior tops, since $1923 mania top,is NOW touching the current rise to $1679, looks like a GREAT time for a BIG HUGE turnaround, IMO, today is a GREAT market day.

Thanks for posting this, t_winn. Interesting article. Let's remember that the target dates (per the article) have a 3 to 5 day margin of error. Only in hindsight will we know if this is/was correct.

The method seems a bit like hocus pocus, though. One could pick a minor bottom or top every few weeks to measure from that would "fit" the target one is trying to prove or add weight to. Just saying...

Agreed on the ST bottom and gradual up into mid aft. The day's end is the big ?????

AAPL's upcoming earnings after Tuesday's close provides a lot of bullish hope (right or wrong) for the market. Tuesday's close or Wednesday's open could be the ST,MT, or LT top we are all looking out for.

correctamundo. silver is just a baby gold proxy, almost always is. however, 33-35 dollar area was range for some time, so it should NOT enter it. today, it was rejected at 32.60, however, IF gold breaks 1681 area, THEN silver will surely follow, back into 33-35 trading range.

BUT the BIG one to follow RIGHT NOW, is th 12810 dji TOP from may 2011. IF THAT BREAKS, foggehtabou it, this is a 'nosebleed' bull run. Yet that seems to be holding up well now, as I wrote yesterday, HUMAN SELLERS stepped in, right before the 2011 top.

I am reposting this from what I wrote below, unedited, since I know none of you saw it. FOR I HAVE ALWAYS EXPECTED A BALD 100% GREEK 'HAIRCUT', since MID 2011, TO END CURRENT 'BULL' CHARADE.

Too much momentum left in this fucking rabid loony ancient bull, so how do you kill it, you need a stick of dynamite, to blow up the motherfucker that won't die. So, what will BE that dynamite? IMO, probably a soonforthcoming FULL 100% greek bald 'haircut' , and then dropping out of euro and back to drachma, with ALL it's repercussions and implications, not just for the rest of the future of the totally iliquid PIIGS, but what THAT will mean to all of Europe, amerika, and rest of world, with each Eu country then, one by one, failing to make their debt payments, since there will be no one crazy eough to continue buying their trash bonds, and then, one by one, each dropping out of euro, and back to their own old currencies. And, when the FAKE 'bull' finally dies, like a paper 'bull piñata, due to 100% greek 'haircut', how big will be his sudden 1-day fall? I still say a 1-day drop down to 1050 spx area.

The method doesn't make sense to me either. I was wondering if they count these days around the FED's schedule. It is not difficult to pick FED meeting dates, make a bet which way the FED will go, and position a top or bottom around these dates. Given that the market has been on the QE drug since 2008, this has a good chance of being right...

As a cohort to counting EW with price, I like to count waves of breadth.At the present, I'll proffer that we are in a wave 4 down (of 5 of C), with 'A' down completed, working on 'B' up.If wave 4 is to be completed by the close, then net advance/declines should be less than -958.If wave 4 spills into Tuesday AM, the calculation will differ.

This is another reason that I think that the market has to go down. The ETFs (like all derivatives), are just another form of leverage of some trading instrument. If you think about it in the simplest way, the more availability that is created like ETFs, ETNs, 2x, 3x, inverses, etc. (increasing supply in a paper way), the lower the price must go. Just a thought…and another reason that recent and current markets are different than historical; new trading “products”.

OKAY this is what I think. look at the 120 ES (SPX will do) think we are putting in a retrace just under ES 1311, any higher as i said and the down will prolly be broken. we have some work to do up on this shoulder

I wouldn't go long except for very short term. The market is poised for a drop. VXX and VXZ are just letting us know that the direction is unlikely to change right now, but that could change very quickly.

I read it as investors are not nervous. VIX and VXX will probably continue to drop to historical norm., Which is around 15 for VIX. Certainly, it may change. But that seems to be the trajectory, for now.

While the method seems a little hokey, there are many who find Elliott Wave Theory, Fibonacci Retracement, and even trendlines a little hokey. If this ends up being correct, it will certainly warrant a deeper look.

I took a long postion on Friday, was nicely profitable this AM, watched it drop some and move back up in the PM. Got out for what amounted to a scalp. I have zero confidence in SPX making HOD now, which is why I exited. I have to say that I wont be going long again, because the upward momentum looked weaker to me.

My view is that if the market is to move higher, it will be on one final gap up tomorrow and then down from there. I've seen so many technnical indicators and timing models that point to a top right now, that we have peaked.

I saw the original Rukeyser show back in 1981 and remember how incredulous Rukeyser was when Lindsay made his prediction. I calendared the prediction and noted it came to be but had lost track of who it was that made the prediction by then and was unsuccessful in tracking it down. I was a happy person to see this post. Watch Rukeyser's rehash from the link posted on Carlson's site when you have a chance: http://www.georgelindsay.com/george_lindsay/wall_street_week_with_louis_rukeyser. It makes me want to know more about the man and his system.

Okay, more technical. These two planets were within 1-2 degrees of this square last week of July 2011- first week of August 2011. If you look at that time frame you'll find issues regarding: USA debt ceiling, USA downgrade by S&P, etc.

I expect the issues to be around Change/Revolution/Innovation versus Debt/Taxes/Entrenched Power.

In an individual corporate chart, I have witnessed this as a "Debt Explosion." The company, unable to find a route to IPO, instead leveraged their situation for a special dividend payout to the benefit of the founders and the detriment of the company's long term financial prosperity and employee satisfaction.

For all squares - Energy builds into the exact timing of the square and requires release. Imagine taking a stick and applying pressure from both ends to break it in half - the pressure builds until the stick snaps - you have the resolution but you have to account for the release of the energy.

From a market standpoint, squares can be significant reversal zones.

If people are interested, I will go into more detail over one of the weekend discussions.

Amazing day, DJIA closed red. Here is the triangle on the DAY ES I mentioned, a bigger picture. The shoulder area that I said it was involved in building is visible on the 120, more work to do there, this chart does not show off that should area. Also something th does not show on this chart is the gold/oil/ES relationship that I look at for intraday charting. $VIX closed outside BB on Frida but said it could take up to three days for that to start moving. This top is the most brutal I have ever seen, best to keep trades very short term or stand aside. It broke my ES 1311, then came right back down. Amazing.

YES, TOO MANY times around, BUT THAT is what is totally required, for GSC5's ENDING, so odds are EXTREMELY high, that it it will beheaded KILL ALL of the few megabears left, BEFORE it squatch splat kills, ALL imbecilic mentally retarded amerikan bull 'money managers'.

AND I CANNOT WAIT, TO SEE THEM ON INTL. CNBC JUMPING OFF HIGH NEW YORK BUILDINGS, JUST LIKE IN 1929, and seeing the lovely blood bone splats they make, on the new york street concrete sidewalks. "WATCH OUT BELOW!!!!!!! ANOTHER STOCKMARKET MONEYMANAGER COMING DOWN FAST!!!!!" JAJAJAJA!!!!! FANFUCKINGTASTIC.

3rdworld TVannouncer: "repeated slowmo video, at 10pm your time, of another EX-rich amerikan jumping off building. NOT for your children to watch, send them to bed, EX-rich amerikans are so crazy..." JAJAJAJA.

But you fail to understand that Amerika has a secret weapon you are unaware of that will save us all and allow us to remain in power for another 600 years. I am not at liberty to say what it is but this item is better than pez; better than Coke, better than MickieDs that has permeated the entire globe. Yes better than hoola hoops, better than Walmart, better than twinkies, Apple computer, iPhone, M&Ms, marshmallow fluff, Slim Jims, VCRs, Beta Max, vinyl albums, Ring Dings, 45 records. . . . . . .

For only 99$ a month I will provide the name of this item. It is a penny stock, guaranteed to multi-quadripple in a day. Yes, that is only 99$ to acheive wealth beyond your wildest dreams. Hurry today.... rotf. . . .

thnx.pretty soon this pattern will change, pattern now is to drop it o/n and in the morning, then build it back mid to late day. Soon it will down in morning, be trying to rally mid-day and fall EOD. Have to be patient. check your email?

CalD your reply further down (don't scroll, too much hatred...) if you are looking at a chart without time and price in a pretty liquid market, how do you see, which time frame it is? Besides from gaps, I have real problems identifying.

Check out the samples: http://img716.imageshack.us/img716/3186/forexchartsfreeforexchax.jpghttp://img705.imageshack.us/img705/8562/forexchartsfreeforexchau.jpghttp://img594.imageshack.us/img594/4672/forexchartsfreeforexcha.jpghttp://img854.imageshack.us/img854/4672/forexchartsfreeforexcha.jpghttp://img819.imageshack.us/img819/3319/forexchartsfreeforexchag.jpg

they are all 5m, 10m, 30m, 60m, 5h and d. But I don't know anymore, what is what, sorry :). I see some pretty nice moves and some pretty awful charts. No matter what time frame. Personally I feel most comfortable in the 1m chart with the cavalry charts up to 1h helping. But 5m or 1h is also nice, only takes so long.

After you enter a time or price spread, do you usually just let it play out until quite close to expiration since you know your max loss? I ask because the slippage and bid/ask spread (on spreads and options) makes it very expensive to get whipsawed. What's your strategy on these? What underlying asset do you usually play with your spreads?

Also, what's your strategy if you suspect volatility is likely to spike all of a sudden? Would you still choose a spread strategy? I had on a good size call spread on SDS (30 strike long, 34 strike short) right before the flash crash (late April, May 2010), and I was completely dismayed as I saw SDS take off, but the value of the spread did not take off because the implied volatility became so huge on the options as the market crashed. I profited, but I was kicking myself because my profit was about 1/5 what it could have been if I had not hedged at that time.

MACD, MA, timing analysis on all charts. I look at the 3, 5,10,15, 60, 120, 240, 480, D. It is like a stop action film, action on one time frame turns the gears on the next. BTW, twin pipes on the 120 chart, nice ones. It appears than the break of my 1311 level WAS just a stop grabbing move.

Seeking Alpha posted "See E-Mini S&P500: Double Top or Pop" on 1/20 when it closed at 1310.75 after 1/19 close of 1308.36. Make sense to incorporate as additional indicator? Author is a bull seeking to hold 1308 with a KO of 1285.50.

It depends on the trajectory of the price action. If I think there is a reasonable chance that my bet is paying off, then I'll let it run. If I think that I made a wrong bet, then I'll close the spread and reduce my cost.

The best way to take advantage of volatility is to use time spread. I make a lot of money a while ago on silver. The front end months were very volatile but not the back end months. So I bought back end month puts and sold the front end weeklies.

But you have to have a good handle on the alphas, gamas, etc. and knows how to read time-values.

I would reply with the famous Thomas Jefferson quote about a government that's big enough to give you everything you need is big enough to take everything you have... but Jefferson didn't actually say it. It was more likely Gerald Ford -- and while it's a great quote, nobody wants to run around quoting Gerry Ford...

I agree with both of you. This market has been a bitch and a half lately. I'm mainly just taking little stabs here and there... picking up a decent # of points at times, and losing a couple/few points other times. Happy to be patient as long as I need to -- been too tired lately to stay up and play all the intra-day squiggles.

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